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I believe Olin should consider to allow credit sales. An advantage would be is an increase in sales by offering to purchase on credit. It also show that you respect your customers by trusting them to pay for their purchases at a later time. Olin will gain the respect of his current customers while gaining new customers from other competitors and creating competition.
There are some disadvantages to allowing credit sales. Cash flow will be affected due to the delay in cash coming in according to the credit terms. The cash that used to be available before will not be there to pay bills. It’s also just an overall huge risk to take. Customers credit history needs to be checked before taking the risk. Even if the customer does have a good credit history it can still lead to bad debts. If the collection agency isn’t able to obtain the money then it is an expense to the business for their purchase. Accounts receivable will become a new account to fund. Accounts receivable will need to be calculated and updated frequently. If customers don’t pay on time an invoice should be sent out which will create more work.
Olin should make an estimate on how much revenue he will actually gain with the huge risk he is taking by allowing credit sales.
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